The U.S. dollar traded in a mixed direction overnight, gaining against the Euro on renewed sovereign debt concerns but falling versus the Pound as British consumer sentiment rose from a record low. The New Zealand dollar rose to a 5-month high against the greenback after increased demand for an auction of government bonds. Singapore’s dollar rallied to a record high after its central bank said it would allow faster appreciation to combat inflation after its economy grew quicker than economists forecast. Meanwhile, the U.S. economic docket showed that wholesale costs in the U.S. rose 0.7% in March, led by higher prices for energy. The increase in the producer-price index was smaller than forecast as food prices unexpectedly dropped for the first time since August, Labor Department figures showed today in Washington. The median projection in a Bloomberg survey was a 1% gain. The muted price pressures will likely weigh on the dollar as the Federal Reserve will likely find the scope to hold interest rates near zero for most of the year. Also, more Americans unexpectedly filed first-time claims for unemployment insurance last week. Applications rose 27K last week, the most in two months.
The Euro dropped against most of its counterparts on concern Greece and other nations may be forced to restructure their debt payments, encouraging demand for a refuge. German Finance Minster told a newspaper that Greece may need to negotiate with creditors if an audit in June questions the nation’s ability to make debt repayments. At the same time, the head of Standard & Poor’s European sovereign ratings, said the risk of Greek debt restructuring has risen, and losses to bondholders may be 50%-70%. As a result, Portuguese and Greek bonds slumped, weighing on the currency. Traders will also pay attention to the Bank of Spain as they approach a deadline to approve a restructuring plan for the nation’s “cajas”, the small savings banks at the heart of the nation’s real estate bubble. Spain remains at the center of sovereign debt concerns, as the nation is believed to be too large to be bailed out by the current EFSF rescue fund.
The Japanese yen gained against most of its major counterparts as Asian stocks fell and leaders of the so-called BRICS nations said rising commodity prices posed a threat to global growth. Leaders of Brazil, Russia, India, China and South Africa called for greater regulation on derivatives on resource markets to limit their volatility. The leaders said “excessive volatility in commodity prices, particularly those for food and energy, poses new risks for the ongoing recovery of the world economy,” boosting demand for the currency as a safe-haven.
The British pound strengthened against the U.S. dollar and the Euro as a report showed U.K. consumer confidence rose in March from a record low, adding fuel to the argument that the central bank may increase interest rates. The index of sentiment gained to 44 from a revised 39 in February, which was the lowest since records began in 2004, the Nationwide Building Society said today. The pound has extended its gains in early trading after U.S. economic data showed minimal price pressures in the world’s largest economy.
